Money Instructor – Page 65 – Articles and Informational Resources: Money, Personal Finance, Business, Careers, Lifestyle

Getting Grant Funding: Dollars in your Backyard

Are you worn out by trying to raise money for a good cause with bake sales, car washes and raffles? There’s another way to go about raising money for a good cause, which is to find free grant money.

Free Grant Money

What is grant money?
Grant money is funding provided by a federal, state, local group or funding provided by a private, charitable or civic organization. Most often grant money is distributed to non-profit groups such as health care organizations, schools, arts programs, and service agencies. Grant funding is available to help underwrite the costs of various projects ranging from providing food and shelter to the homeless to funding art programs for disabled adults to underwriting the cost of computers for a classroom.

How do you learn about the availability of grant funds?
While there are government funds, including federal and state grant funds available, it often helps to look closer to home for a source of grant funds. Local funding is less likely to have administrative and regulatory mandates and is most often the easiest type of grant funding to secure.

Who gives away grant funds?
Think about the organizations in your community which raise funds for good causes. The Elks Club, Women’s Club, Rotary, Kiwanis and other civic or fraternal clubs are good sources for grant funding. Grant funding is sometimes available from local businesses especially the local division of a national firm such as Wal-Mart or Blue Cross Blue Shield.

How do you learn who gives away grant money?
It’s helpful to start talking to people in your community who do fundraising professionally. They can be great resources in helping you locate sources of grant funding. In many communities, there is a professional network of fundraising professionals. Many public libraries provide detailed reference material giving information about funding availability, how to apply and levels of funding that may be available.

What’s the trick to getting grant funds?
Typically, the group or business giving away the grant funding has very specific requirements. The availability of grant funds might be limited to charitable programs serving a specific geographic area or a certain population of people. Grant funds might be available to support visual arts but are not to be used for theatre programs. Some grant funds will cover the costs of salaries and general operating expenses while some grants are available only for capital expenses. The trick is to obtain a copy of the grant application as well as any written guidelines to ensure that your group and project qualify for the grant. It can be extremely helpful to contact a representative directly to learn if grant requirements have been changed or if new requirements have been added.

If your project fits within the stated goals of the grant-making program, then applying for a grant can be a very fruitful effort in terms of raising needed dollars. Be prepared to spend considerable time in research, evaluation and preparation of the grant. Expect that you will wait 3 months to 16 months before being awarded grant monies. Many funding sources will also require an evaluation of your project along with a report about how the grant funds were expended.

Is it worth it to go looking for grant dollars?
If you are working on a long-term project and desire to build financial sustainability for your cause, then grant writing can bring needed dollars through the door. Once you’ve gone through the hard work of writing one grant, you’ll have done much of the work required by any other grant source. Getting grant funding adds another dimension to your fundraising efforts and will help individual donors to see that the work your agency is doing is being supported by larger institutions thereby giving your organization a new level of credibility in the eyes of donors.

What’s the toughest thing about getting grant funding?
Probably the toughest thing about getting grant funding is locating the source of the funds. There are literally thousands of grants available. Grants can be tough to find. But with some research, investigation and networking, you’ll find grant dollars are not only available but likely available from local groups who would love to support your good cause if only asked to do so!

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How the Check 21 Banking Law affects Customers

The Check Clearing for the 21st Century (Check 21) Act affects banking customers throughout the United States, potentially making them vulnerable to extra bank fees — and worse, unintentionally bounced checks.

This Act, designed to benefit the banking industry, is actually testament to the ongoing march of automation in the banking business, and outside of some blatant consumer-unfriendly side effects, is actually quite useful. The Act permits banks to clear checks electronically, instead of having to physically send the paper checks between institutions. It’s efficient, and saves banks a lot of money in processing costs. It also lets them clear checks presented to them almost immediately.

Because of this piece of legislation, banks no longer have to physically send paper checks to one another. They can instead create what’s called an Image Replacement Document (IRD), a digital equivalent of a check, and then destroy the original. Checks can then be transferred electronically between banks as part of the clearing process. Not only is this vastly more efficient for banks, it also allows them to institute fraud prevention measures that could, for example, electronically compare signatures on each digital check, with a customer signature on file.

Now because of this new level of automation, banks can clear checks within just a few hours. This means that consumers will no longer be able to enjoy any type of float. If you write a check, there better be money in the account at that moment–writing a check and then driving to the bank to deposit money will no longer be an option. Financial analysts say that it’s not responsible to do that anyway, and if that were the only loss to consumers, the Check 21 Act would pose no threat to banking customers. But it doesn’t end there.

Banks typically place a “hold” on deposited checks in order to allow time for them to clear. For an out of town check, this can be as long as ten business days. The Act does nothing to reduce this hold time, even though banks process the checks immediately–which means that the float that consumers lose, banks gain. In short, the bank can clear your deposit within minutes, not credit it to your account for days, and enjoy the benefit of your money in the interim period.

Another unfriendly result of Check 21 is that it will become impossible for consumers to receive their paper checks back with their statements. In fact, because some banks will still accept paper check inter-bank transfers and some will not, there’s not even any way for you to tell where your checks will be located, and how long they will be held before being destroyed.

The inevitable result, according to many studies, is that consumers will bounce more checks, and banks will earn millions more in overdraft fees. Banks will also gain another revenue stream because original checks will be destroyed–and they can then charge you whenever you want a copy of the digital image of your check.

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Important Queries Before Opening a Bank Account

Before you open a bank account, it’s really important that you choose your bank very carefully. You need to exercise great caution while choosing a bank. But don’t worry, the process is quite simple if you can get the answers to some important questions. It will surely help you in selecting a bank with good financial assets and excellent service.

Before Opening a Bank Account

In case you are a frequent traveler, you need to go for a larger bank with multiple branches spread all over the country. A money withdrawal facility from all major towns and cities is also necessary. In this way you won’t have financial worries on your mind, and can easily withdraw money from any branch or ATM of the bank. On the other hand, if you don’t travel a lot, a local bank is enough and no large network of bank branches or ATMs is necessary.

If you would like to maintain a traditional saving account, a general banking system will also work for you. But if you want express banking by ATM, phone, or Internet banking then a big bank with the latest technologies is suitable for you.

If you need to write a lot of checks everyday, you need an economy account. An account which maintains a minimum balance and skips overdraft protection will be necessary. If you don’t want that, you can open only an overdraft protection account.

You need a carbon-copy check facility if you want to keep detailed records of your payments. If, however, you don’t want your records to be that meticulous, cancel the carbon-copy checks. You need to know whether account access is free of charge or has to be paid for. You need to know which bank charges the lesser amount of fee. You should also know the charges for electronic bill payment.

Ask somebody about online operations before signing up for Internet banking. Ask whether the bank has any regulations with your state banking system. You should also know whether you would need special software to set up an account. If this is the case, the bank will provide you with the facility to download the software. Most of the banks provide this software to download without any charge.

Think of the online services that you could benefit from. Do you need to check your savings account balance? Do you want to know about their credit card, mortgage loan, auto loan facilities or about their line of credit? You should think whether you could contact the bank or credit union in case of any dispute arising in transaction or bill payment. You should also know the number of days that it would take to resolve the issue if such a dispute actually happened. Most of the banks take 10 business days to resolve such disputes.

The security of the bank account is one of the most important issues. Ask if it would be possible to directly meet the manager or account officer on occasions. You should know about the time taken to complete different online services and the mode of service. You should also be aware of the discontinuation procedure, in case you don’t want to go ahead with your online access or if you are not satisfied with the bank’s customer service.

For teaching about banking please see:
Teaching Banking and Savings Accounts
Teach and learn about bank savings accounts, banks, and interest rates.

How to Cut Banking Fees

Your banking expenditures are increasing everyday. You need to cut banking costs.

While most people use a bank account to save money, some of your hard earned money is usually taken by the bank in the form of monthly fee or maintenance charges.

Here is some advice and tips on reducing the fees you are paying to the bank.

Cutting Banking Fees

Combine Accounts
Even if you have an account with no fees, you often need to always be sure to keep deposited a certain amount in your bank account. If you do this, then often you miss out on earning interest in higher yielding accounts. The best solution to curtail this is by using a bank which offers free checking and combining a savings account with a checking account. If you then keep only as much money as required for immediate payment of bills in your checking account, you can keep more money in your higher interest paying savings account.

Use an Average Daily Balance Account
You need to watch your habits related to your banking transactions. Free checking will not help you at all if your balance goes down below its minimum limit, and you have to pay high fees. If you keep enough in an interest bearing account, then you are advised to keep it in a bank that uses the average daily balance method. This method is used for calculating minimum balance and interest. In this situation, you are not charged for any type of fee, in case your balance goes below the minimum limit for only a short period of time.

Borrowing Costs
The differences in fees related to different banks are apparent when you borrow money. You generally borrow money from a bank for purchasing a car and real estate. You may find that some banks are charging too high interest rate as compared to others, and save money by shopping around, rather than using your current bank.

Avoid ATM Fees
Always use only those ATMs which don’t charge any type of transaction fee. Suppose you withdraw $100 and the ATM charged $0.5 for the transaction, than effectively you pay 0.5 per cent as surcharge on withdrawing your own money.

Balance your Checkbook
You also have to pay some money as a penalty if your checks bounce. Always balance your checkbook since you may incur a fine of at least $25 for a single bounced check. If you issue four checks at a time, than also you may loose $100.

Use Free Online Banking
Many banks charge for their online banking and you may be paying as much as $7 to $8 per month for online banking. They also may charge an additional amount up to $6 for the payment of each bill. However, many banks now offer free online banking to avoid these fees.

You should always keep in mind that it is much easier to save money as compared to making money. You need to work hard to make money. If any banking system is eating into your earned money, than take the money away from that institution. Always keep yourself well informed about how much you are paying in fees and other transaction costs.

For teaching about banking please see:
Teaching Banking and Savings Accounts
Teach and learn about bank savings accounts, banks, and interest rates.

Banking
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The Benefits of Banking Online

How many drawers did you have to look through to find a bank statement the last time you needed one? Chances are you did not lay your hands on it as readily as you would have liked.

If that is a familiar scenario in your home, help has arrived in the form of online banking. Even if you are among the most organized, online banking offers convenience you can’t beat.

Online Banking

Consider online banking with your credit union for instant organization and access to all of your account information. With online banking, information about deposits, payments, statements, and all transactions is immediately available with only a few key strokes 24 hours every day.

Bill Paying
Use online banking to pay your bills, transfer money between accounts and monitor your spending. When you pay your bills online you will need to take 15-30 minutes to set up your vendors (lists of payees, addresses, account numbers, etc.). After that, it takes mere seconds to set up a bill payment. You can opt for automatic payments on a date of your choosing or you can point and click each month.

Bills paid via online banking arrive at their destination in as few as two days. You don’t need stamps, envelopes or even a pen. Best of all, online banking compiles and allows you to access your payment history for every vendor on your payee list.

Saving Money by Banking Online
Not only will you save yourself the worry of searching for perpetually lost cancelled checks and bank statements you will also save a little money. Most credit unions offer online banking services and e-statements, etc. to their members at no cost with direct deposit or a qualifying account (usually as a benefit of a home equity loan or money market account).

Budgeting and Tracking Spending Advantages
Online banking is infinitely more convenient than waiting for your paper statement each month or even telephone banking. Your transactions are recorded in real time and you can see them as they occur. When you avail yourself of online banking services you are better able to track and monitor your spending. You may even find that it is easier to follow a budget and to avoid overdraft charges with online banking because you have a visual of your spending.

Is Security an Issue?
Worried about security? While anything done by computer can never be completely safe, a great deal of technological thought and energy is being brought to the task of maintaining Internet safety. Your banking information is encrypted making it difficult that third parties can peek in. There is ample evidence that consumers have become more comfortable with online financial transactions. For instance, check printing has seen a decline and online shopping has seen a substantial increase. Financial institutions support our increasing embrace of online banking because it streamlines transactions and costs a great deal less than paper based transactions. Credit Unions pass these savings on to their members.

Visit your local bank or credit union online to take a free online banking tour and demo. You will be surprised to learn how pleasant paying your bills and managing your finances becomes with the convenience and accessibility of online banking. The money you will save is an added bonus.

For teaching about banking please see:

Teaching Banking and Savings Accounts
Teach and learn about bank savings accounts, banking, and earning interest.

Banking
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Finding the Right Bank Account — Evaluating Alternatives

Finding the right bank account seems to be very difficult. Many people have several checking and savings accounts running simultaneously with no actual benefit.

It would be better than have one efficient checking account and one efficient savings account running and then you don’t have to worry anymore about your day-to-day banking. There are two main issues you have to resolve when finding the right bank account.

Choosing a Bank Account

Banks rely on your laziness
If you have a bank account you are probably paying fees on items you have no idea what they are. Most people happily carry on paying these fees every month and banks rely on this. This is how they make a lot of money. If you are paying $10 per month in fees and there are 1 million other people like you a bank will make $120 million a year just on laziness alone. What value do you get in return? Very little probably. So, make a decision today to find the right account.

Know how you bank

Do you visit your bank a lot or do you do a lot of online banking?
Do you write a lot of checks or do you make mostly electronic transfers?
How much money are you keeping in your checking account and how much are you saving?

These questions, and more, are all critical to selecting the correct bank account for you. There are accounts which offer free internet banking and penalize you for visiting a bank teller. If you hate internet banking and like visiting your bank then clearly that is the wrong account for you.

Some accounts have high fees for writing checks and low fees for electronic transfers. So if you are a check writer then that is also the wrong account for you. Don’t be dazzled by offers of a free $50 deposit into your account when you open or a free gift. They will make their money back in the first month because you haven’t got the right account for your needs.

Finding the right bank account is really that simple, make a decision to change and then find features that suit your style of banking. This will save you time and money. If you are concerned about bill payments being debited from your account automatically, many banks will sort out all the transfers for you. After all, they want your business.

To Choose a Bank or Not?

When it comes to financial institutions and resources, banks are the first thing that pop into most people’s minds. Using a bank for day-to-day financial matters may actually end up costing them money. Here is some information on some possible banking alternatives and other banking options.

Banking Alternatives
Banks charge a lot of fees, in case you haven’t noticed. There are fees if you use a teller more than a certain amount of times per month. There are fees for your checks. Actually, banks have fees on just about everything. If you look closely at your bank’s checking account information, you’ll see this immediately.

Also, banks generally charge a higher rate on their financial tools such as mortgages, loans, lines of credit, and credit cards than, say, credit unions charge. Many even still charge fees for using their ATM machines.

Credit Unions
So what other options does a person have? A credit union is one great way to break the bank habit. Credit unions are more likely to have fewer fees and charges for their services. They were, after all, the first financial institutions to offer free checking. Many times they offer a higher rate and better terms on items like CDs and IRAs. And since being deregulated in the late 1990s, anyone can become a member.

Credit unions in your area are likely to provide a high level of convenience. In all honesty, this is the chief reason most banks are so successful. There’s a bank branch or ATM machine for the heavy banking hitters on practically every corner. That’s their main attraction-convenience. To compete with banks’ convenience, most credit unions have followed suit and are likely to be easily accessible in your city. They also provide the same online benefits as large banks. Most have great ATM capabilities too.

Online Banking
Another possibility to consider is an online bank. While the convenience of getting quick cash may be lost, they’re a great way to manage your money. They make it super easy to pay bills online. Many of them also offer great deals on CDs, IRAs, and loans. And that makes them a good alternative to check into. There are also special online mortgage companies that give first rate mortgage rates and services.

And it is possible to have the best of all worlds. Many people have accounts in all three types of financial institutions or a combination of them. Only you can know what’s best for you. But before you choose a bank, research other options to ensure that you’re getting the best services for the best prices.

For teaching about banking please see:

Teaching Banking and Savings Accounts
Teach and learn about bank savings accounts, banks, and interest rates.

Banking
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Preventing Identity Theft

“Identity theft” explains it clearly; theft of ones identity. Under Federal law, identity theft is defined as when a person “knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable state or local law.” 18 U.S.C. § 1028(a)(7)

Here is some information on how you can help prevent identity theft.

Are you a victim of Identity Theft?
Many people are naive when it comes down to the subject of identity theft. You may be a victim of identity theft, and sadly to say, not realize it. One of the most common methods of identity theft is stolen credit cards and impermissible usage of bank accounts.

Pay attention to monthly bank account statements and credit card statements. Always keep a record of your deposits and withdrawals. This way, you will be able to have reference and compare it to your statements. Evaluate every transaction carefully, to insure no inaccuracies and unfamiliar charges and/or withdrawals.

How does Identity Theft occur?
There are many ways a person can commit identity theft. Such ways include:

By means of the internet. These people are commonly referred to as hackers. They can “hack” into your computer and view confidential information you submit online. Always be aware of purchasing items and disclosing your personal information to websites. Be sure to verify the websites reputation before submitting personal information. Also, make sure that all credit card purchases are secure.
Identity thieves will go through your mail and steal mail containing confidential information. You can contact senders and request for confidential information, such as account number, social security number and birth date not to be included in correspondence. You may also have your mail sent to a Post Office Box.
Identity thieves will perpetrate as legitimate business or credit card agencies requesting your personal information, either by phone, email or mail.
Most commonly, identity thieves will steal your credit card or checks out of a lost wallet or purse. If this is to happen, make sure to immediately report your credit card and checks lost or stolen.

What can you do to prevent Identity Theft?
There are many ways to help prevent identity theft. Such as:

Never keep pin numbers in your purse or wallet.
Be aware of submitting personal information and credit card information online.
Never throw confidential information into your garbage can. A better method is to shred documents or save the documents until you are able to shred documents.
Never give out your personal information over the phone. Request for credit card offers and business correspondence to be sent through the mail. This way you will be able to verify legitimacy of the company and verification of a return address.
Use a Post Office Box or a Personal Mail Box, instead of your residential mailbox.
Monitor your credit report regularly.
Monitor your credit card and bank account statements monthly.

Reporting Identity Theft
If you believe you are a victim of identity theft:

Notify your local police department immediately.
Notify all three credit bureaus.
Notify your bank.
Contact all of your creditors and inform each company of the situation.

Banking, Personal Finance
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Student Checking Accounts: A Great Way to Teach Money Management

Student checking accounts may be one of the best ways to help a student, either high school or college bound, learn how to budget, account for, and manage their own funds.

Here, we have information on student checking accounts. Also, see our our checking lessons section for some helpful teaching and learning worksheets and lessons.

Student Checking Accounts

There are several different types of checking accounts just with students in mind that can let parents help monitor from afar how well their student is doing with their bank account.

Joint Accounts
One type of student checking account is one in which a parent and student are joint account holders. In this case, the student’s name and parent’s would appear on checks. Statements would also come addressed to both.

This may be a good way for a parent to keep close tabs on how a high school student is doing with paying for their personal expenses that require writing a check or having a payment deducted from a bank account. This may include a personal cellular phone bill, purchasing items for a school team or club, or making payments for music lessons not covered by the parents. Also, high school students can learn to use their ATM and debit VISA card wisely at the local movie theater or Mall. They will learn to spend only what they have in their account, and not rely on credit for necessities or luxuries they cannot afford.

More money lessons to learn
Smart students will get one more lesson from opening their own checking account. A student checking account does not always have the same fees attached as a regular, basic checking account, but there would still be fees for being overdrawn and they will learn that deposits can take a few days to credit to their account before they can actually spend the money. These are good topics for parents to carefully address with the students, before they learn the hard way. Thrifty students will also get a lesson on interest bearing accounts. Often with balances as low as $100, students can earn interest on their checking account.

College students usually have more expenses that need to be paid by check as they head off for school away from home. There will be rent and groceries to add to the list of expenses and even utilities, car insurance and other school related expenses such as books, lab fees, and tuition. Parents opting to help pay for some of these expenses can help the student by having the student account close to home. This way parents can add funds from home for the student to use in check writing or by accessing their ATM card.

If there is a problem with using out of state checks by students, then the Internet may be the solution. A student can open an account in the city where they attend school. By allowing parents to have their online password and account number, moms and dads at home can go online and add funds to the account. The student can check balances from school or home and write local checks without any problem.

Start by teaching checking account basics
No matter how big or small a student’s budget, it is always a good idea for parents to teach the basics of how a checking account and ATM debit card work. At some point in their life, even with the age of the Internet, students will have to rely on using a bank account of some sort to pay their bills. By teaching them to carefully record each transaction and balance their checkbook record with monthly statements, the student will be well on their way toward handling a checking account responsibly.

For additional related material for teaching and learning about checking accounts, please see the following:

Check Writing and Checking Account Lessons
Teach and learn how to write a check, make checking account deposits and withdrawals, manage and balance your checkbook, and bank reconciliation with your monthly bank checking account statement. Worksheets, lessons, lesson plans and exercises.

Banking, Kids & Money, Personal Finance
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Keep your Tax Records Straight

No matter if you are eighteen and just finished school or sixty-five and recently retired, you will have records that you will need to keep. Some records will need to be kept for longer periods of time than others are.

Knowing what to keep, how to keep it and what to throw out can help you eliminate clutter. Also, having your important records handy is also important in case of an emergency or a life-changing event.

Keeping your Tax Returns

Of course, one of the first things you will have is your tax return. The last three years of tax returns should be kept on file in an accessible place. After that time, you may wish to destroy your returns; don’t just throw them out. Remember that your tax returns contain some of your vital information, such as your mailing address and your social security number. You do not want that information lying around in this day and age so make sure that you store them securely in your home.

Your receipts and financial records associated with your tax return should be organized and kept with that year’s respective return. If for some reason the IRS audits you, you will have everything handy in one place. Having these records organized at home will save you time in having to request them from your tax professional or accountant if the need arises to have a copy of them quickly. If it is necessary to keep receipts and financial records in another location, then make sure you have copies of these receipts with the tax return.

A good tip on keeping receipts is to make copies of them on an actual copy machine such as a Xerox or Mita. This is especially imperative for any thermo-paper receipt that you have. The impression on thermo paper, which nearly every retailer uses now a days, will faded off in one to six months, literally leaving you with a blank or difficult to read receipt. Also, store these receipts in a cool dry place, as heat will make them appear burned or turn them black making them completely illegible.

If you have receipts that have been created using carbon, make sure that your copy is legible and dark enough to be read after some handling. Remember that most carbon styled receipts will “crinkle” or turn dark when folded or creased so store them flat in a cool dry place. These receipts will also turn dark if exposed to too much heat, rendering them illegible.

Having everything in one place will also be useful if you are being audited in more than one year. Tax returns can be destroyed after three years, but keep in mind that if the IRS finds something amiss in your current tax return, they can go back farther than three years to audit if they suspect fraud.

Keeping your records straight will benefit you immensely in the long run. It will aide in keeping clutter down, expedite finding them in a pinch and save you time and money requesting copies. Remember to also have other important documents, such as birth certificates and life insurance policies stored safely and securely as well. You never know when you might need them.

Tax Planning for the Entrepreneur or Small Business

There is a certain excitement in the starting of a business. Everything is new, or new to you, and there is so much to do and to complete. There are bills to pay, supplies to order, accounts to balance, staff to train, and taxes to pay.

If you have recently started your own business, be it accounting or zoological consulting, you are required to report your income to the Federal government, and most often to your state and local government. There is a wealth of information out there on self employment, working from home, running small businesses – but not much is ever really said about taxes for the sole proprietor.

Depending on your residency, you may be responsible for city, county, and state income taxes as well as sales taxes. You will need to contact your local government in regards to the rates and time frames in which these taxes need to be paid. Keep in mind that different areas have different controlling bodies and therefore may also have different tax rates. If you conduct business in more than one location, you may need to be informed of the different tax structures in those areas.

Federal income taxes are required on all worldwide income and that includes self-employment income. If you work for someone who pays you cash, keep in mind that “under the table” does not mean tax-free. There is no such thing as under the table income. If you work for yourself, you will be required to keep track of your income and expenses. These are both reportable on the Schedule C form from the IRS.

You may also be required to send in quarterly tax payments to the IRS. Quarterly tax payments are made to the IRS, as part of the pay-as-you-earn system of tax paying. While employed persons have withholding taken out of their checks every payday, self employed persons must pay that withholding themselves and that is what the quarterly payments are set up for.

Consulting an accountant and a tax professional are highly recommended for anyone starting a business, especially for the first time. There is also a wealth of information, most of which the IRS will send you printed copies of free of charge, at the IRS website. Don’t be surprised at tax time; learn about your tax liability now!

A Myriad of Tax Filing Options

Requirements for filing taxes are fairly simple and now, with the help of electronic filing, your options on how to file are even more varied. Filing your Federal Income taxes is a necessary evil, but it need not be too complicated for you. Keep in mind that whether you file your taxes by hand or have them prepared by a service, they will need to be postmarked or received by the IRS no later than April fifteenth. If for some reason you are unable to file by this date, you will need to file an extension with the IRS.

The tried and true method of filing your taxes is to fill out the forms by hand and mail them to the IRS. If you are comfortable with your tax situation and have plenty of time to get your return postmarked, then this option may be for you. It can take six weeks or longer, depending on when the IRS accepts your return, for you to get your refund back by mail, possibly a shorter time frame if you have your funds direct deposited. With this method comes one major drawback. Someone on the IRS end will have to enter the return into the IRS computers. You must write clearly and legibly and anytime that someone is doing data entry there is the risk of error.

The IRS also has the Telefile system. Telefile allows you to file your simple return over the telephone. This can dramatically shorten the time frame in which the IRS accepts your return. IRS acceptance of a Telefile return can be within a few days. This will also decrease the amount of time it may take to receive a refund. The down side to this type of filing is that you can not use this system if you incur certain tax situations, for example, if you have self-employment income.

Electronic filing can be done now and is becoming more available every year. Most tax services, accountants, and even some tax software will allow you to electronically file your taxes. The IRS website even has free electronic filing for very simple returns. Some tax filing services also have online filing at their websites. You will have to research what types of forms and payment requirements are available for different services.

Your accountant can usually file your taxes for you as well. This is a great option if you work closely with your accountant and he or she has updated tax knowledge. Keep in mind that tax law changes somewhat every year and who ever you have prepare your taxes for you should be knowledgeable of these changes and qualified to file them for you. Even if you have your accountant or a tax service prepare your taxes, you are still responsible for what is on that return. Always review your return before it is submitted to the IRS.

There are dozens of tax services that will prepare and file your taxes for you. These services usually will have the most updated information and qualified tax professionals. Do your homework and do not count solely on advertising when choosing a tax service. One of the benefits to using a tax service is that you will usually have the opportunity to sit with a tax professional and ask questions during the preparation of your return. Stay away from any service or preparer that does not allow you to ask honest and straightforward questions.

No matter how you file your taxes, make sure that you do indeed file them. If you do not file your taxes, and you are required to do so, you may be charged with tax evasion. If you have questions regarding your requirements for filing taxes, contact a tax professional or the IRS.

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Federal Income Tax Adjustments and Deductions – Adjusted Gross Income (AGI)

If you have filed taxes before, you should already know that the higher your Adjusted Gross Income, or AGI, the more taxes you are likely to pay. Your Adjusted Gross Income will also determine your eligibility for many of the credits you might qualify for.

But what determines the Adjusted Gross Income? Your Adjusted Gross Income is calculated by subtracting any adjustments you have from your total worldwide income.

Tax Deductions and Adjustments

There are many adjustments that can be claimed against your income. Adjustments are found on the front pages of the forms 1040 and 1040A. There are several more adjustments that can be claimed on the 1040 than on the 1040A. Adjustments that are on both forms are the Educator Expenses, IRA Deductions, Student Loan Interest, and the Tuition and Fees Deduction. On the 1040 form you will also find adjustments for certain business expenses, health savings account deductions, moving expenses, several self-employment deductions, and any alimony paid.

These adjustments are set up to give taxpayers a break on their expenditures. For example, IRA deductions allow the taxpayer to contribute up to three thousand dollars (per taxpayer) a year into a qualified plan and then adjust their worldwide income by that amount. Essentially, you are not paying taxes on that amount until you withdrawal it at retirement. This allows the taxpayer to pay fewer taxes at present as an incentive to save for retirement. On the 1040, penalties on early withdrawals of savings can be adjusted if the withdrawal qualifies. Any time you make a withdrawal from retirement accounts, you should consult a tax professional to make sure you are prepared for the tax consequences.

Educator expenses can be adjusted through 2005, but the adjustment is temporary, only available for a few years. This adjustment allows qualified educators employed by accredited institutions to deduct up to two hundred and fifty dollars (per taxpayer) of the qualified expenses that they occurred during the year. An example of this type of expense would be supplies for classroom use, such as markers and paper.

Student loan interest can also be adjusted. If you are paying on a student loan for qualified higher education, the interest you pay annually can be adjusted from your total worldwide income. Keep in mind that education credits are different from the student loan interest adjustment and the tuition and fees adjustment. Tuition and fees adjustment is taken when you have qualified higher education expense and it is more beneficial to claim the expenses as an adjustment than as credits. When dealing with educational expenses, it is always best to consult a tax professional to see what educational benefit would best suit your individual return.

If you are self-employed, there are several adjustments that you can claim on the front page of the 1040. One half of your self-employment taxes can be claimed as an adjustment to your income. Also, if you are paying self-employment health insurance, SEP, SIMPLE or other qualified self-employment retirement accounts, portions of these amounts can be deducted as well.

Paying alimony? Make sure you have the receiving spouse’s social security number at tax time. Alimony is fully adjustable on the 1040 to the payer. However, the receiving spouse’s social security number must be on the return. The receiving spouse must claim the alimony as income on his or her own return.

Some moving expenses, such as transfers for job purposes, can also be claimed as an adjustment. Traveling expenses, moving of your household goods, lodging and even some meals can be claimed in moving expenses. Consult a tax professional to make sure you qualify for this adjustment and that you claim everything that you are able to.

Adjustments to your income will play an important role not only in how much you pay in taxes, but also in determining your itemized deduction amounts, the amount of various credits you will qualify for, and any earned income that you are entitled to. Keep in mind that you may need additional forms for some of these adjustments and that you will need to keep receipts for various items claimed as well. As always, you should consult a tax professional or the IRS if you have questions.

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Avoid Being Audited: Fear of the Audit

Is there a word in the English language that strikes more fear into the hearts of American taxpayers than “audit”? However, an audit doesn’t have to be a terrifying experience. There are several things that you can do to avoid an audit all together, as well as be prepared if you are audited.

Avoiding IRS Audits

Be Honest
The first thing to remember in tax filing is to be honest. It seems rather trite to actually have to tell taxpayers to be honest on their taxes, but thousands of people every year “cheat” or claim dishonest adjustments on their taxes. The tax system, as it is today, is full of honest ways to lower your tax liability and finding out about these beneficial adjustments and credits should be the first thing a taxpayer should do come January. Tax law changes occur every year and it is vital that taxpayers keep abreast of the new changes and laws that occur.

Consider using a Professional
Finding a good tax professional or an accountant will be essential if you have a complicated return. Even if you are unsure about a simple return, it is always advisable to seek professional advice when preparing your taxes. Remember that a simple ignorant mistake can cost you time and money if you are audited.

The IRS Audit and Enrolled Agents
An IRS audit is generally two days duration at the minimum. This is time that you will have to be in attendance. The only way that you can avoid being present for an IRS audit is if you hire an Enrolled Agent to represent you. Enrolled Agents can charge as much as $120.00 and hour and will usually bill for a minimum of sixteen hours. Even if you have an agent represent you at the audit, you will have to meet with that person and have all your records in order for them to properly understand your situation and the reason why your taxes were filed as they were. Time is money, and you will spend a great deal of time if you are audited.

Tax Audit Consequences
Another thing to consider is the consequences of an audit. If it is determined that you intentionally filed a fraudulent return, which is a federal offense, you could face jail time as well as hefty fines and penalties. Being honest on your taxes is not only the law; it is a sure-fire way to stay out of trouble. Keep your information and your records updated and don’t fall into the ignorance trap.

Focus areas and Red Flags
The IRS chooses several items each year as topics per say to initiate audits. Some items are more subject to audits than others are in these recent years. Head of household filers and those claiming the Earned Income Credit are hot topics with the IRS due to the numerous fraudulently filed returns containing these items. Dependant exemptions are another frequently audited item. Again, being honest on your taxes and not claiming things that you do not qualify for will help you to avoid trouble with the IRS. In the event that you are audited, there will be nothing to hide during the process.

Keep your Tax Records and Documents
You will also need to find out what records to keep and make sure that you have your last three years tax returns along with any required receipts and records handy. This will help you if you are audited to save some time trying to request copies from your accountant, tax service, or worse, the IRS itself. Having everything in one place will also be useful if you are being audited on more than one year. Tax returns can be destroyed after three years, but keep in mind that if the IRS finds something amiss in your current tax return, they can go back farther than three years to audit if they suspect fraud.

In Conclusion
Above all, file your taxes honestly and make sure you file them on time. Audits are costly in time and inconvenience, but a necessary process to keep fraud to a minimum and to keep fairness in the system. The tax code is complicated, so if you have questions, pose them to a qualified professional, not just your neighbor. Misinformation can get you into trouble as well as dishonesty.

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Understanding the 1040 Federal Income Tax Form

Basics of the 1040

The IRS Form 1040, as with the 1040EZ and the 1040A, is broken down into sections:

Label Section
The first section you come to at the top of the page is the Label section. The label on your tax return contains several very important items such as the correct spelling of your full name, and that of your spouse’s if you are married. As well as your correct mailing address and social security numbers. Also, the box for electing to contribute three dollars to the Presidential Election Campaign Fund is located at the bottom of this section.

Filing Status
Your filing status is the next section. There are five filing statuses at this time and they are Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualified Widow/Widower. Make sure that you find out the requirements for each filing status before you choose how to file.

Exemptions
Exemptions are the next section and here is where people will tend to get into trouble. Your personal exemption and that of your spouse, if you have one, is located here as well as your dependent exemptions. The laws defining dependants are changing in the near future, so you might want to check into this matter before listing someone other than the biological children that live with you. Foster children and other relatives can at times be claimed on your return, if you follow the guidelines for such. Make sure that you qualify before you list these individuals on your return.

Income
The next section is Income. Read through this section carefully. All worldwide income is reportable and there are some incomes that require you to fill out additional forms. For example, self-employment income will need to be filled out on a Schedule C and then the total reported on the front page of the 1040. Taxable interest, capital gains, retirement allowances and any other types of income are all listed and totaled here.

Below the Income section is the Adjusted Gross Income section. Here you will find adjustments to your income. It is important that you do your research well when it comes to adjustments. This section is where you will begin determining your tax liability and your ability to claim certain credits. These adjustments include retirement contributions, tuition and fees deductions, and certain business expenses. There are also new adjustments in the future, so update your tax knowledge often. This is the last section on the front page of the 1040.

Tax and Credits
Beginning on the back page of the 1040 you have the tax and credits section. Here is where you will subtract your standard or itemized deductions and exemptions in order to find out what your taxable income will be. Once you have your taxable income you will be able to look up your tax liability. Then you move on to the credits.

Credits will only bring your tax liability down to zero, that is why some of the credits are limited depending on what your total tax is. Credits in this section include the adoption credit, dependant care expenses credit, educational credits and for a few years only, the saver’s credit. These credits will be subtracted from your tax liability.

Below the credits is the Other Taxes section. This is where you would put the total of your self-employment taxes, taxes on early withdrawal of savings, advance earned income payments and household employment taxes. This is also where you would report social security and Medicare taxes on unreported tip income.

Payments
Next you have the Payments section. Here is where the federal income tax withheld is located and any estimated taxes that were paid during the year. The earned income credit and additional child tax credit are here also as they are refundable credits, not just tax lowering credits.

Refund and Amount you Owe
Lastly there is the part most people either eagerly await or dread – the Refund and Amount You Owe sections. After subtracting your total taxes from your total payments, you of course will either have a refund located in the Refund section or a balance due located in the Amount You Owe section. Located in the Refund section are also the elections to have your refund directly deposited into a bank account and the election to have the IRS hold onto your refund for next year.

Signature
At the bottom of this page is the signature requirements. This is a very important section as your tax return is a legal document and your signature denotes that you have filed it correctly to the best of your knowledge. Even if you have a third party complete your return for you, you are still the legal responsible party when it comes to your taxes. Once you sign this document, you are accepting the responsibility of what is on it. Remember to check any documents that you have prepared by a third party before signing and delivering them to the IRS.

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